Intel ultra-balks at Ultrabook manufacturers requests

There has been a bit of talk on the PC Perspective front page about Intel's new Ultrabook form factor and if it can profit Intel to release in a market that already has Apple firmly embedded in the minds of consumers as the "thin" guys. First were the complaints from manufacturers that the bill of costs for an ultrabook was in the neighbourhood of $1000, which would put the price of sale above the competitions. Intel then responded with a claim that the 11" and 13" ultrabooks with a thickness of 18mm will be between $493 to $710 to manufacture and the larger 14" to 17: inches, 21mm thick models will run between $475 and $650.

That price disparity seemed a little odd, as there was no explanation from Intel about where the manufacturers got their maths wrong nor an announcement of price drops from Intel to make up the difference. What we did see was a promise by Intel to provide $300 million in funding to those who develop technologies to further the ultrabook form factor, which might help offset some of the costs of manufacturing but certainly not enough to reduce the bill of sales by a third or more.

Now the waters are even further muddied as we hear today from Digitimes that Intel is refusing a request by manufacturers to cut the price of the CPU models which will be found in ultrabooks by half. Instead Intel is willing to drop the price by 20%, along with some marketing subsidies which will help once the product makes it to market but which will not lower the cost of the bill of materials at all. That is not going to help make the ultrabook a good investment for the first-tier manufacturers to develop. Add to that concern the fact that Intel's coming ultraportable Oak Trail platform, with paired Atom Z670 CPUs costs almost four times as much to produce as a Tegra 2 machine, even the discount that Intel refused is not going to make them attractive to sell.

"Intel's Oak Trail platform, paired Atom Z670 CPU (US$75) with SM35 chipsets (US$20) for tablet PC machine, is priced at US$95, already accounting for about 40% of the total cost of a tablet PC, even with a 70-80% discount, the platform is still far less attractive than Nvidia's Tegra 2 at around US$20. Although players such as Asustek Computer and Acer have launched models with the platform for the enterprise market, their machines' high price still significantly limit their sales, the sources noted.

As for Ultrabook CPUs, Intel is only willing to provide marketing subsides and 20% discount to the first-tier players, reducing the Core i7-2677 to US$317, Core i7-2637 to US$289 and Core i5-2557 to US$250.

As for Intel's insistence, the sources believe that Intel is concerned that once it agrees to reduce the price, the company may have difficulties to maintain gross margins in the 60% range and even after passing the crisis, the company may have difficulty in maintaining its pricing. Even with Intel able to maintain a high gross margin through its server platform, expecting Intel to drop CPU prices may be difficult to achieve, the sources added."

I love how Intel and its computer "partners" are arguing over the cost of Ultrabooks. Intel wants Ultrabooks to not only compete with the MacBook Air, but also with the IPad and Android tablets. Intel's cost estimates fall squarely in iPad territory. ARM processors are rapidly closing the price/performance gap with x86 processors.